G20 Summit in Hangzhou promotes green revolution

Erik Solheim

This year's G20 Summit in Hangzhou produced some groundbreaking policy changes on the world stage, particularly in the move towards financial investment in clean and green technology.

The global economy is in transition. Anywhere you look in the world, you can see this. From private companies embracing clean technology and clean energy, to countries putting sustainable growth at the centre of national planning, the drive is towards inclusivity and the green, and both are urgently needed.

Such changes have been heralded both by the Paris Agreement on climate change and the adoption of the United Nations 2030 Agenda for Sustainable Development last year. These are superb ambitions and the right direction for our future.

As we watch the change play out and help it quicken, we see that it is driven by forward-looking countries and businesses. But a piece of the puzzle is still missing: namely the effective service of the global financial system.

Bold policymakers, often from developing countries, have been experimenting with new methods

We need trillions of dollars of investment to both fix what we've done to our planet and to eradicate extreme poverty. We need this investment for a future where we are not blighted by climate shocks, failing ecosystems and widespread instability. To unlock that investment, we must reshape the financial system.

Many leaders in the financial system have long understood this. And many over time have made attempts at new financial products and business models to help meet the need.

Despite some exemplary progress, however, there is a long way still to go in overcoming backward-looking interests and policy, and regulatory frameworks insensitive to what is needed to secure an effective, efficient and resilient financial system.

But there is something brewing. A quiet revolution has been underway in recent years. Bold policymakers, regulators, investors, bankers and insurers, often from developing countries, have been experimenting with new methods and measures to build the financial system we need for a sustainable future.

This "quiet revolution" was first chronicled in a United Nations Environment Programme report, entitled "The Financial System We Need" in 2015. What was discovered was remarkable: an unprecedented rise of policy and market innovations independently taking place around the world, from Bangladesh to Brazil, and from France to Kenya.

Internationally, the burgeoning green bond market is predicted to surpass $150 billion in market value before the year is out. A number of credit rating agencies have embedded climate risks in their ratings. And certain regulators and stock exchanges are providing information on sustainable development information to investors and savers.

Green finance is becoming a source of competitiveness. Leading financial centres such as Hong Kong, Paris, Zurich and London are jockeying to position themselves as the world's hub for green finance.

And under China's G20 Presidency, this quiet revolution is becoming mainstream, as green finance has, for the first time, become a topic considered by the world's leading finance ministers and central bank governors. China and the United Kingdom are co-chairing this initiative, and are leading by example.

Zhou Xiaochuan, governor of the People's Bank of China, has presided over the creation of China's Green Finance Committee. This committee is implementing policy, regulatory and institutional measures, developed with international cooperation and coordinated by the UNEP (United Nations Environment Programme), to help “green” China's financial system.

Zhou has said that "establishing a green finance system has become a national strategy", and it is now enshrined in China's 13th Five-Year Plan (2016-20).

Change is happening at an incredible pace. The threat of climate change means we need to quicken this pace further

Mark Carney, governor of the Bank of England, has overseen a review of the risks posed by climate change to the UK insurance sector, as well as overseeing a task force on climate-related disclosure in his role as chair of the G20's Financial Stability Board.

Mr Carney has made his view clear, stating "there is a need to reset the financial system", if it is to play a role in addressing climate change and broader sustainable development challenges.

The UNEP remains deeply engaged in advancing such a reset and we will release our second global report on progress made in aligning the financial system with sustainable development at the forthcoming International Monetary Fund annual meetings, presenting an early framework for measuring progress and with a focus on the role of financial technology.

We are part way through a profound global economic transition. From energy to transport to agriculture to manufacturing, change is happening at an incredible pace. But the threat of climate change and the urgency of development means we need to quicken this pace further. Global finance systems are key to these changes, and the G20 can, and must, continue to drive such changes. An ambitious direction was set last year in Paris and New York. Now we need to put this ambition at the heart of the financial system.

The author is executive director of the United Nations Environment Programme.

This article was originally produced and published by China Daily. View the original article at chinadaily.com.cn